Apart from issuing equity securities, corporations can fund themselves by issuing long-term and/or short-term debt. In the long-term debt market, a company can issue one or more fixed-rate bonds to investors for a tenor of 2-30 years, for example. During the term of a fixed-rate bond, the company makes periodic coupon payments to the bondholders based on a fixed interest rate. In the short-term debt market, a company can issue short-term floating-rate instruments or commercial paper which provide short-term liquidity, wherein the interest rates may be reset, for example, on a weekly, monthly or quarterly basis.
Historically, floating-rate funding has been (almost invariably) cheaper than fixed-rate funding. However, long-term funding provides a corporation with greater certainty as to cash flow. There is significant demand for the low cost offered by floating-rate funding to be combined with the certainty offered by fixed-rate funding. No existing financial instrument appears to meet that demand.
In view of the foregoing, it would be desirable to provide a funding solution which overcomes the above-described deficiencies and shortcomings.